ACCT 526 MIDTERM EXAM SCRIPT 2026
QUESTIONS WITH COMPLETE SOLUTIONS
GRADED A+
◉ Which of the following is the mathematical expression for
calculating number of units to earn target income? Answer: Number
of Units to Earn Target Income = (Total Fixed Cost + Target Income)
÷ Contribution Margin per Unit
◉ Assuming that fixed costs remain the same, the change in
operating income from a change in revenues is calculated by.
Answer: multiplying the contribution margin ratio and the break-
even sales.
◉ In a cost-volume-profit graph, the break-even point lies at the
point: Answer: where the total revenue line and the total cost line
intersect.
◉ Which of the following is an assumption of CVP analysis? Answer:
Linear revenue and cost functions remain constant over the relevant
range.
◉ Which of the following differentiates direct fixed expenses from
common fixed expenses? Answer: The direct fixed expenses are
,those fixed costs that can be traced to a segment, whereas the
common fixed expenses are not traceable to the segments.
◉ Which of the following statements is true of sales mix? Answer: It
is the relative combination of products being sold by a firm.
◉ A company manufactures two products. Information about the
two product lines for the current year is as follows:
Product A
Selling price per unit $90
Variable costs per unit $50
Product B
selling price per unit $120
variable costs per unit $60
The company expects fixed costs to be $70,000. Calculate the break-
even quantity of each product when the sales mix is 2:1. Answer:
1000units, 500 units
40 x 2/3 +60x 2/3= 46.666
70000/ 46.67= 1499.89
,1500/3x2= 1000
1500/3x1= 500
*WACM= contribution margin x split ratio + contribution margin x
split ratio
*fixed cost/ WCAM= break even units
◉ The margin of safety in dollars is calculated by. Answer:
subtracting the break-even sales from the actual sales.
◉ Lauren Company plans to sell 3,000 units of a product at $500
each. For the product, unit variable cost is $380 and break-even
units are 700. Calculate the margin of safety for Lauren in terms of
the number of units. Answer: 2300
3000-700= 2300
*Actual units sold- break even units= Margin of safety in units
◉ Young Manufacturing Company plans to sell 600 units at $500
each in the following year. The data on costs is as follows:
, Variable cost $400
Total fixed cost $30,000
operating Income $30,000
Calculate the degree of operating leverage. Answer: 2
*contribution= sales- variable cost
(600x500)- (600x400)= 60000
*Degree of operation leverage= contribution margin/ operating
income
◉ The contribution margin is the difference between sales and
variables expenses. T/F Answer: TRUE
◉ If the variable cost ratio is known, it can be subtracted from 100
to yield the contribution margin ratio. T/F Answer: FALSE
◉ If price is $10, unit variable cost is $2.50, and total fixed cost is
3,000, 240 units must be sold to breakeven. T/F Answer: FALSE
QUESTIONS WITH COMPLETE SOLUTIONS
GRADED A+
◉ Which of the following is the mathematical expression for
calculating number of units to earn target income? Answer: Number
of Units to Earn Target Income = (Total Fixed Cost + Target Income)
÷ Contribution Margin per Unit
◉ Assuming that fixed costs remain the same, the change in
operating income from a change in revenues is calculated by.
Answer: multiplying the contribution margin ratio and the break-
even sales.
◉ In a cost-volume-profit graph, the break-even point lies at the
point: Answer: where the total revenue line and the total cost line
intersect.
◉ Which of the following is an assumption of CVP analysis? Answer:
Linear revenue and cost functions remain constant over the relevant
range.
◉ Which of the following differentiates direct fixed expenses from
common fixed expenses? Answer: The direct fixed expenses are
,those fixed costs that can be traced to a segment, whereas the
common fixed expenses are not traceable to the segments.
◉ Which of the following statements is true of sales mix? Answer: It
is the relative combination of products being sold by a firm.
◉ A company manufactures two products. Information about the
two product lines for the current year is as follows:
Product A
Selling price per unit $90
Variable costs per unit $50
Product B
selling price per unit $120
variable costs per unit $60
The company expects fixed costs to be $70,000. Calculate the break-
even quantity of each product when the sales mix is 2:1. Answer:
1000units, 500 units
40 x 2/3 +60x 2/3= 46.666
70000/ 46.67= 1499.89
,1500/3x2= 1000
1500/3x1= 500
*WACM= contribution margin x split ratio + contribution margin x
split ratio
*fixed cost/ WCAM= break even units
◉ The margin of safety in dollars is calculated by. Answer:
subtracting the break-even sales from the actual sales.
◉ Lauren Company plans to sell 3,000 units of a product at $500
each. For the product, unit variable cost is $380 and break-even
units are 700. Calculate the margin of safety for Lauren in terms of
the number of units. Answer: 2300
3000-700= 2300
*Actual units sold- break even units= Margin of safety in units
◉ Young Manufacturing Company plans to sell 600 units at $500
each in the following year. The data on costs is as follows:
, Variable cost $400
Total fixed cost $30,000
operating Income $30,000
Calculate the degree of operating leverage. Answer: 2
*contribution= sales- variable cost
(600x500)- (600x400)= 60000
*Degree of operation leverage= contribution margin/ operating
income
◉ The contribution margin is the difference between sales and
variables expenses. T/F Answer: TRUE
◉ If the variable cost ratio is known, it can be subtracted from 100
to yield the contribution margin ratio. T/F Answer: FALSE
◉ If price is $10, unit variable cost is $2.50, and total fixed cost is
3,000, 240 units must be sold to breakeven. T/F Answer: FALSE
